China’s parliament to meet, discuss reform

Official agenda tame, but discussions on reform expected to be lively

By

ChrisOliver

HONG KONG (MarketWatch) — Kick-starting stalled reform efforts and maintaining economic growth are the likely focus of discussions at next week’s meeting of China’s parliament, its final get-together ahead of a once-in-a-decade leadership change set for later this year.

While the official agenda is expected to steer clear of significant policy shifts, the talk among members of the National People’s Congress is expected to tackle thorny topics such as how to get China’s economic-reform agenda back on track and how to keep the economy growing, analysts said.

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The meeting of the National People’s Congress takes place against a background of weakening economic performance in China and concern that efforts to reform the heavily state-controlled economy may be stalling. The meeting also coincides with the 20th anniversary of former Chinese leader Deng Xiaoping’s tour of southern China, during which he gave a series of watershed speeches urging faster reforms to preserve economic progress.

At the meeting, which starts on Monday, Premier Wen Jiabao will present the government’s annual work report, along with the 2012 budget, to roughly 3,000 delegates. Analysts said they expect Wen to conform to the Chinese custom of deferring important policy changes for the new administration.

“In his last year at the helm, Premier Wen is unlikely to signal any major policy shifts,” according to Capital Economics’ London-based analysts.

But China experts said that while the official agenda would be tame, discussion at the meeting would focus on key social issues.

Daiwa Capital Markets analysts led by Mingchun Sun wrote in a Friday research note that in recent years, the National People’s Congress “has increasingly become a forum where the delegates express their views on social and economic issues.”

Sun said that it looked as though attitudes were shifting toward re-energizing stalled reforms. He believes coming developments will highlight the need for further privatization, adding that the State Council, China’s cabinet, in early February rekindled a 2005 plan to speed up reforms to railways, telecoms and other areas dominated by state control.

“The chance of successful implementation looks higher this year as most local governments are struggling to find sufficient funding for their local infrastructure projects, given diminishing land-sales revenue and the difficulty of obtaining bank loans by local government-financing vehicles,” Sun wrote in the note.

Former monopolies could be opened to competition as early as this year, if the reforms gain momentum, he added.

Sun also said changes to the tax system, including the introduction of a limited sales tax, as well as a further opening up of the banking sector, were in the cards.

The move to embrace deep reforms might not be far off, agreed Standard Chartered’s Stephen Green in Beijing. He labeled a report released earlier this week by the World Bank, produced in conjunction with the China’s Ministry of Finance and the research arm of the State Council, as a “landmark” event that shows senior leaders are more inclined toward change.

The World Bank’s report said the country’s economic model must be modified if the country’s economy is to continue to grow strongly. It urged China to increase competition, aid private companies and cut the profile of state-owned firms. The report made many recommendations, including tax and financial-system reform, as well as reducing inequality.

“Frustration with the state sector has become more widespread as have concerns about a future crisis,” Green wrote in a note.

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